Business Context and Reporting Period
This Form 6-K, filed on June 22, 2005, by The Toronto-Dominion Bank (TD), reports a definitive agreement for Ameritrade Holding Corporation to acquire TD's U.S. brokerage business, TD Waterhouse U.S.A. The transaction creates a combined entity named TD Ameritrade, intended to become the largest online retail broker by average daily retail equity trades. TD Bank Financial Group will receive approximately 32% ownership in the new entity, while Ameritrade shareholders will receive a special cash dividend of $6.00 per share. TD will also acquire Ameritrade's Canadian brokerage operations for $60 million in cash.
Key Financial Metrics and Projections
The filing provides pro forma financial metrics based on the assumption that the two companies operated as a single entity for the twelve months ended March 2005 with full synergy realization:
- Annual Revenue: More than $1.8 billion.
- Annual Net Income: $557 million ($0.92 per diluted share), representing 39% accretion over Ameritrade's stand-alone basis.
- Pre-tax Margin: Approximately 52%.
- Client Assets: Approximately $219 billion.
- Client Margin Balances: Approximately $7.3 billion.
- Account Base: Approximately 5,931,000 total accounts (3,248,000 qualified accounts).
- Trade Volume: Average client trades per day of approximately 239,000.
- Synergies: Expected annualized gross synergies of $578 million, to be realized within six quarters after closing.
TD Bank Financial Group reported total assets of CDN$359 billion as of April 30, 2005.
Material Changes and Transaction Terms
The primary material change is the structural combination of Ameritrade and TD Waterhouse U.S.A. Key terms include:
- Ownership Structure: TD Bank Financial Group will hold ~32% of TD Ameritrade. TD is subject to ownership limits of 39.9% for three years and 45% for years four through ten.
- Dividend: Ameritrade shareholders receive a $6.00 per share special cash dividend, funded by borrowings, excess cash, and capital contributions.
- Tender Offer: TD will commence a tender offer for an additional 7.9% of outstanding shares at $16 per share (ex-dividend) immediately following closing.
- Management: Joe Moglia will remain CEO of TD Ameritrade. The board will include designees from the Ricketts family, TD, and independent directors.
- Timeline: Closing is expected in approximately six months, subject to regulatory and shareholder approvals.
Outlook, Risks, and Management Commentary
Management views the transaction as accretive within twelve months, aiming to shift toward an asset-gathering model with a diversified revenue mix. CEO Joe Moglia stated the deal accelerates the long-term investor strategy while maintaining industry-leading margins. TD CEO Ed Clark noted the transaction provides immediate value and extends growth opportunities in the U.S.
Risks and Contingencies: The filing includes a Safe Harbor statement noting that actual results may differ due to risks including:
- Failure to obtain necessary stockholder or regulatory approvals.
- Inability to realize planned synergies or execute integration strategies.
- Financing risks regarding the dividend payment.
- Loss of key employees or customers during the transition.
- Competitive pressures in the rapidly changing marketplace.
Investor Verification Checklist
- Verify the status of regulatory approvals in both the U.S. and Canada required for closing.
- Confirm the final terms of the tender offer for Ameritrade shares once the Schedule TO is filed.
- Monitor the realization of the projected $578 million in annualized gross synergies over the 18-month post-closing period.
- Review the upcoming proxy statement for details on the special interests of directors and executive officers.
- Assess the impact of the $6.00 per share dividend on Ameritrade's capital structure and debt levels.